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Tharp's Thoughts
Weekly Newsletter
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Feature: Preparing for the Next Big Market Narrative, by D.R. Barton, Jr.
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Workshops: $700 Early Enrollment Discounts Expire TODAY on August Workshops
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Tips: Mentally Rehearse Your Disaster Plan, by Van K. Tharp, Ph.D.
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Video: New Forex Trade Video Targeting A Low Risk Entry
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$700 Early Enrollment Discount Ends Today!
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***Late Addition Bonus***
Complete Recordings for Attendees
Attending Sideways Market Strategies!
After much discussion, and because this workshop is designed only for a small group of attendees, Van has agreed that ALL of our Sideways workshop attendees will receive online access to the video recordings of the workshop. Normally, only our Super Traders have access to these extremely valuable recordings and we have never before made this offer available.
Take advantage today and book your seat, knowing that
you can review workshop lectures again before your follow-up coaching calls!
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Day Trading Systems Workshop in August
Deadline is approaching! Register TODAY to Give Yourself Time to Prepare
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TIME SENSITIVE: Due to the extensive pre-work that will be distributed by Dr. Long to prepare for this class, it is highly recommended that students sign up NOW. We want each student to have ample time to complete the pre-workshop assignments and be fully prepared so Ken can focus his teaching time on the most beneficial topics instead of basics. The course pre-work requires about two weeks of study (evenings and weekends).
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Preparing for the Next Big Market Narrative
by D.R. Barton, Jr.
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In 1880, Englishman John Venn introduced Venn diagrams to the world. They have proven to be a visually compelling way to show how sets of data interact. Here’s how they work (with a tongue-in-cheek example) —
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A Venn Diagram will help me explain exactly where we are with the evolution of the overarching market themes that I wrote about in last week’s newsletter tip. The dominant market theme is in an early stage of transition and today we’ll look at three events from the past month that have let us know exactly where we stand. We’ll also look at which key signposts will inform us that the narrative has shifted completely.
Quick Review — The Shifting Narratives
I use the term “market narrative” to describe the overarching concept driving the markets at any given time. Since the U.S. Presidential election, the narrative has been the Trump Growth Agenda. It has three pillars: lower taxes, less regulation, and more infrastructure spending. Since the election, any news that supported the narrative has sent the markets hurtling up. Very tellingly, any news that has been counter to Trump’s agenda or counter to his administration has sent the market down — but only by a small amount and only for a short period.
This narrative has been very strong and it persists to this day but an emerging narrative is starting to compete for attention and market reaction. With my apologies to Pete Townsend, meet the new narrative, same as the old narrative (here, the old one refers to the narrative before Trump Growth). The new narrative, like the old one, centers on the Federal Reserve.
Before the November 2016 election, the driving market narrative focused on anything that might encourage or discourage the Fed from raising interest rates. The up and coming narrative is about the Fed’s need to normalize its balance sheet and is being referred to as “The Great Unwind”. This new narrative has just started to exert its influence — and is growing in importance every day - although it hasn’t overtaken the Trump growth narrative just yet.
In brief, here’s the new narrative summary. As the Great Recession started winding down in 2009, the Fed systematically added massive amounts of liquidity (new money) to the markets by buying U.S. government bonds and mortgage backed securities (MBS). Over many years, Quantitative Easing programs swelled the Fed balance sheet by an amazing $3.5 trillion dollars. That’s trillion with a “t”. Here’s what that growth looks like graphically:
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The Fed now has a problem: keeping all that money circulating in the economy could cause it to overheat. Any sudden reductions to the Fed’s balance sheet could cause a severe roller coaster economy. So what’s the Fed to do? It intends to start “normalizing” its balance sheet — which means shrinking it toward the pre-crisis levels.
Since these normalizing actions are still some time off, let’s focus today on how this narrative will start to exert itself. Right now, we’re seeing something in the markets we haven’t seen in a few years — a blended narrative — call it one major narrative giving way to a sub narrative that will eventually take over. Here’s where a Venn diagram will help us understand what’s happening with the narratives:
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As you can see, I expect the narratives to transition over time until “The Great Unwind” is all that matters to the market.
While we are in this “in between” state, let’s look at the two key signposts that will tell us which narrative is exerting the most influence:
- How does the market digest important economic news? In the Trump Growth narrative, good economic news has sent the market higher while bad news has sent it lower. The opposite will be true in “The Great Unwind” Fed narrative. Good economic news will be bad for the market because traders and investors will fear quicker or bigger unwinding actions by the Fed. Bad economic news will be good for the market because a weaker economy will likely reduce the Fed’s tightening measures.
- How does the market react to news about the Trump administration or congress? In the Trump Growth narrative, any news about lack of efficacy in the White House or on Capitol Hill has pushed the market down. News that made the president look more “presidential” or that has been supportive of key members of the administration has pushed the markets up. In “The Great Unwind” Fed narrative, Trump administration news will have little to moderate effects on the market.
Three Charts Confirm Where We Are
In the last month, the market has given us three data pieces that tell us that the Trump Growth narrative is still primary and that “The Great Unwind” narrative has only started to rear its head.
#1: The Monthly Employment report from the first week in July. The economy added 220,000 new jobs when the expectation was for 178,000. The market’s reaction told us all we need to know. See how traders reacted to the pre-market announcement with the S&P 500 futures chart that trades almost 24 hours a day during the trading week. Each bar on this chart represents 5 minutes:
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Clearly, the reaction “good news is good for the market” tells us the Trump Growth narrative is still the dominant market theme.
#2: Trump, Jr emails from the campaign. On Tuesday July 11th just after 11 a.m., news of some campaign era emails from the president’s son, Donald Trump, Jr., hit the newswires. Those emails were potentially very damaging news for the administration. Under the Trump Growth narrative, we’d expect a drop in the market — and that’s exactly what we got:
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#3: Yellen congressional statement release. On Wednesday July 12th at 8:30 a.m. — an hour before the markets opened — Fed Chair Yellen’s prepared statement was released to the press. She would deliver this statement in person later that morning for her Humphrey-Hawkins appearance before congress. If the Trump Growth narrative was the only narrative at work in mid-July, we’d expect the same thing to happen as in mid-June when the Fed raised the interest rate — not much at all. This time, however, something big happened and again, the chart tells the story:
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The market’s jump on dovish statements about interest rate increases and the balance sheet normalization timing (distant) shows “The Great Unwind” Fed narrative is starting to wield influence.
So What?
The Trump Growth narrative remains firmly in place and my bullish bias continues for now. We need to keep a close eye on the news and the way the markets react as a signal for the weakening of the current narrative or the strengthening of “The Great Unwind” narrative. The new Fed narrative will usher in a much more volatile market type that traders call a “two-way market” — one with strong moves in the up and the down directions. Many market participants will experience pitfalls in the new environment but prepared and agile traders will find great opportunity once the market transitions to the new narrative.
I’d love to hear your thoughts and feedback — just send an email to drbarton “at” vantharp.com. Until next week…
Great Trading,
D. R.
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About the Author: A passion for the systematic approach to the markets and lifelong love of teaching and learning have propelled D.R. Barton, Jr. to the top of the investment and trading arena. He is a regularly featured analyst on Fox Business' Varney & Co. TV show (catch him most Thursdays between 12:30 and 12:45), on Bloomberg Radio Taking Stock and MarketWatch's Money Life Show. He is also a frequent guest analyst on CNBC's Closing Bell, WTOP News Radio in Washington, D.C., and has been a guest on China Central Television - America and Canada's Business News Network. His articles have appeared on SmartMoney.com MarketWatch.com and Financial Advisor magazine. You may contact D.R. at "drbarton" at
"vantharp.com".
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August 5-7
Saturday-Monday
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August 8-9
Tuesday-Wednesday
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TIME SENSITIVE: Due to the extensive pre-work that will be distributed by Dr. Long to prepare for this class, it is highly recommended that students sign up by now! We want each student to have ample time to complete the pre-workshop assignments and be fully prepared so Ken can focus his teaching time on the most beneficial topics instead of basics. The course pre-work requires about two weeks of study (evenings and weekends).
Plus, the early enrollment discount of $700 expires on this workshop today, July 26th.
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Dr. Ken Long begins his Day Trading Systems workshop by teaching you two day trading systems called the Frog and RLCO. Through his action-packed lectures students will gain an understanding of each system’s beliefs, rules, and variations.
Ken has been a long-time active trader and observer of the markets. He's noticed the consistent habit of prices for particular issues to move a certain amount. Much like a frog jumps when it hears a loud noise, prices tend to move a certain amount before they pause or move again. Different frogs are able to jump different distances, but each one tends to jump about the same distance as it did last time. Would it be possible to know about how far a stock’s price would move on any given day?
After attending this three-day workshop you qualify to stay on and live trade these same systems for the next two days alongside Ken. Plus attendees will receive follow up assistance in Ken's ongoing Chatroom for Traders.
Special Bonus: Free Membership in Powerful 'Chatroom' Plus Three Coaching Calls
Inspired by the powerful networking Ken has seen develop over the years at VTI, both through the Super Trader program and workshop attendees, he created and leads a group of traders with a shared interest in swing trading and intraday trading which he calls the Chatroom.
Ken and his chatroom members have been developing a daily community of practice to encourage a healthy and helpful environment to support each members' development as a trader.
And, as a way to maintain the spirit of cooperation experienced at the workshops after you are headed back home, you get free membership and access to this chatroom forum. And while this membership is free to workshop attendees, the value of this ongoing interaction and learning is likely as valuable the workshop itself.
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Attend Both August Workshops and Take an Extra $1,000 Off the Combo!
Early Bird Discount of $700 Expires TODAY on Each Individual Workshop
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Presented by Kim Andersson
Profit When Price Goes Nowhere: How to Successfully Trade Sideways Markets In Every Time Frame
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August 11-13
Friday-Sunday
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Announcing An Exclusive New Trading Workshop:
Sideways Market Strategies Profit When Price Goes Nowhere:
How to Successfully Trade Sideways Markets In Every Time Frame
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Kim Andersson covers a few objectives of the new Sideways Market Strategies course in this short video above.
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Did you realize that no matter what time frame you trade or what method you use to measure them, Sideways markets happen between 59% and 65% of the time!
And yet scant attention is given to this market type. When you encounter them the task of trading becomes much more challenging, stressing your systems and your psychology beyond your normal comfort zone. This new workshop is the antidote to this under appreciated, and least understood market type.
AN EXTRA SPECIAL BONUS FROM YOUR INSTRUCTOR
As an extra added bonus, Kim Andersson has agreed to provide additional support to all Sideways Market Strategies attendees for the remainder of 2017! This is no small offer. Your class will get four monthly calls (1 hour each), as well as ongoing email support for months after the workshop. She will offer her feedback and expert guidance for any sideways trading issues you may have for the rest of 2017. This way you know that you can be fully prepared to trade in Sideways conditions and get your follow up questions answered.
Plus! For The First Time Ever We Have An Exciting New Benefit to Offer Sideways Market Attendees: You will have access to a recording of the workshop during the period of follow-up coaching!
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Presented by Van Tharp
with co-presenter RJ Hixson
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September 15-17
Friday-Sunday
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Exciting New Work from Van Tharp
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September 19-21
Tuesday-Thursday
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October 2017 LONDON, ENGLAND
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Presented by Van Tharp
with co-presenter RJ Hixson
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October 13-15
Friday-Sunday
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Presented by RJ Hixson
and Van Tharp
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October 17-19
Tuesday-Thursday
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October 21-23
Saturday-Monday
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Presented by Gabriel Grammatidis
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November 10-12
Friday-Sunday
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Presented by Gabriel Grammatidis
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November 13-14
Monday-Tuesday
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Mentally Rehearse Your Disaster Plan
by Van K. Tharp, Ph.D.
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Trading at a peak performance level requires that you know exactly how to react under any circumstances. What happens if you are holding 8,000 shares of IBM and it suddenly drops 3 points? What will you do? What if you are day-trading S&Ps with about five open contracts when suddenly you get a call from the hospital and learn that your spouse has just been in an accident and is in serious condition? What would you do? What will you do if there is a major stock market crash? Will you know what to do and under what circumstances.
The key to peak performance is having a set of rules to guide your behavior and to be able to withstand anything that might cause you to break those rules. You need to set those rules before you trade. You need to rehearse your disaster plan as soon as you have it.
Normally, you have a conscious processing capacity of about seven chunks of information. However, under stress the body releases adrenaline into the blood stream. Blood is diverted from the brain, which normally gets 50% of the oxygenated blood, to the major muscles of the body. You suddenly have more energy (i.e., to run away), but your thinking capacity is diminished. Typically, under stress, you simply revert to primitive behavior, but with more energy. This might be fine if you must run away from a predator, but it is disastrous if you have to think quickly about some market situation.
The trick to dealing with such a situation is to mentally rehearse it in your mind before it ever happens. When you’ve done so, then your unconscious mind will know exactly what to do and stress won’t even become a factor. You’ll just do it.
I was first introduced to the power of mental rehearsal by an NLP instructor who was a world class cyclist. In order to maintain his world class standing, he had to cycle about 100 miles per day on Southern California roads. About once every 5,000 miles, something dangerous would happen. Several such mishaps nearly cost him his life. As a result, he decided that if he was to live a normal life span, he either had to give up cycling or take some sort of precaution. He chose the precaution — mental rehearsal.
He took his cycle to a field, sat on it, and for two hours planned every scenario he could think of that could be disastrous. For each potential disaster, he worked out a course of action and rehearsed it many times in his mind until it seemed like second nature.
Several months later, he was doing his daily cycling, traveling at a high speed in heavy highway traffic. When he happened to look down at his front tire, he noticed that it had a bubble. Within seconds a major blowout was going to happen. Before he could even think about it, he did a flip over his handlebars. He landed on his feet with his cycle on his back. Had he not done that, his tire would have burst (probably within the next second) and sent him flying into ongoing traffic.
When he stopped to think about what happened, he realized that the flip was one of the behaviors he had rehearsed in the field that day. Mental rehearsal had saved his life. It could save your life too — at least your financial life. Do it today.
Go through steps one through three. Use your mind to make certain that you are ready for whatever the markets bring.
- Before you start trading, make sure you have a plan to guide your trading. When do you exit to abort a trade? When will you take profits? What could detract you from your plan?
- Once your plan is developed, brainstorm to determine everything that might go wrong with your plan or your life. This is not an opportunity to get morbid. Instead, consider it a creative challenge to prevent problems.
- Develop a plan of action for everything that could go wrong. Mentally rehearse that plan until it becomes second nature to you.
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About the Author: Trading coach, and author, Dr. Van K. Tharp is widely recognized for his best-selling books and his outstanding Peak Performance Home Study program - a highly regarded classic that is suitable for all levels of traders and investors. You can learn more about Van Tharp www.vantharp.com.
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New Video — A Low Risk Forex Trade
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Gabriel talks viewers through a typical Busted Breakout trade (System 1) in the AUD/USD pair from two weeks ago. The pattern has several edges and offers a very low-risk entry. The system (and this trade as well) puts the initial stop in a well-protected position and each target acts like a magnet pulling price towards it.
This trade reached the break-even point early by running other peoples’ stops. Busted Breakouts seem to follow some inner logic and a larger pattern you can clearly see at higher time frames. This “standard” trade from Gabriel’s System 1 provided a +4.2R win. While Gabriel might have left some profits on the table, he explains his exit in the context of the new reward to risk relationship.
(Gabriel teaches the rules for a complete trading system based on the dependable Busted Breakout pattern in his new elearning course. Find more information below.)
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NEW E-learning Course!
Forex Trading Systems: The Busted Breakout System
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Gabriel developed and refined his Busted Breakout system on the concept of trend-following while he was still enrolled in the Super Trader program. The system has a high win rate (about 65%) and it takes advantage of a price pattern that happens again and again in the charts — breakout failures. The main advantage of this is that it benefits from running for other peoples’ stops. This is a unique edge of the system making the trade break-even early on. Watching 15-minute charts for 4-6 hours a day and trading only the biggest, most liquid currency pairs, the system finds easily more than 150 trades per year. Gabriel is confident that someone with the
programming skills could turn the system into a well-performing automated trading system.
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FREE Book!
We pay for the book, you just pay for shipping.
Read Van’s Latest Book —
TRADING BEYOND THE MATRIX
The Red Pill for Traders and Investors
Eleven traders tell their stories about transforming
their trading results and lives, in this 400 plus page book.
Below is a brief video on how powerful this book is to traders.
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Cary, NC Workshop Information
For a list of nearby hotels for our Cary, North Carolina locations,
click here.
Book your flight arriving to the Raleigh-Durham International Airport (RDU).
When traveling to a three-day course, it's best to arrive the evening before.
To help determine your arrival and departure times, see:
Questions? Click Here to Ask Van...
CONTACT US
This is a supplement to our subscription based newsletter, Tharp's Thoughts.
800-385-4486 * 919-466-0043 * Fax 919-466-0408
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